ACG6175 – Financial Reporting and Analysis
1. Conduct a DuPont decomposition of Lucent's ROE for each quarter of 1998, 1999 and 2000 (December 1999 is fiscal year 2000’s first quarter). What factors contributed to the differences in Lucent's performance between those quarters?
The following formula is calculated for Dupont:
Each quarter of 1998, 1999 and 2000, the factors which contributed to the differences in the performance between those are the fact that the company was posting false information therefore this explains the huge decrease in the last quarter of the year 99. Over the 3 year 9 months period, employees were surprised by the increase of 879%. There was an increase in the second quarter of 98 because this is where the company reaches the height of reporting their fictitious reports, these major reports raised the red flags which caused the investors to sue them.
2. Evaluate the seasonally adjusted change (i.e., quarter i in year t to quarter i in year t-1) in Lucent's: Sales, Accounts Receivable, Inventory and Gross Margin for the five quarterly periods: December 1998 through December 1999. Be sure to include an evaluation of the Footnote disclosures regarding Lucent's inventories in your examination. Does the explanation for the earnings shortfall provided by Lucent's managers make sense in light of your analysis?
False transactions were reported by the company via comparing the account receivables and the inventories. Accounts receivable increased at a steady pace. The inventory throughout this period continued to increase as well. However, their inventories should have decreased because their sales were increasing. This means that they were reporting future sales/orders, which was either not officially sold and the inventory was not delivered or may not have been order from manufacturer. This is why there was a drop in the earnings per share because the...